Indianapolis, Indiana – The new Indiana budget includes an expedited income tax cut that was authorized last year, which might result in financial savings for you.
As long as the state met specific revenue targets, the complete income tax cut was expected to go into effect in 2029. The complete tax cut has now been delayed until 2027 and those criteria have been abolished.
Republicans in Indiana who worked on the budget have stated that they think the state can afford to lower income taxes for Hoosiers more rapidly.
According to David Ober, vice president of taxes and public finance for the Indiana Chamber of Commerce, it will make Indiana’s income tax rate among the lowest in the country for states that have one.
“The individual income tax rate, you think of individuals, but this tax rate would also impact business owners,” Ober said.
That’s because, according to him, around 500,000 business owners in the state are required to pay that tax on the revenue generated by their enterprises.
“This will be a great benefit to those homegrown businesses that are mom-and-pop shops around the state,” Ober said.
When the income tax rate was 3.23% in 2022, lawmakers approved the tax reduction. It declined to 3.15% this year.
The income tax rate will gradually drop every year until it reaches 2.9% in 2027.
By then, Hoosiers making $50,000 a year will save $165 thanks to the overall tax cut.
“When you cut taxes for households, that gives them some free cash flow, so they spend some of it and they save some of it,” said Philip Powell, a business economics professor at the IU Kelley School of Business.
A different bill adopted this session establishes a panel to investigate the possibility of completely abolishing Indiana’s income tax.
Although it would make Indiana more attractive to new hires, companies, and retirees, Powell said there are a number of things lawmakers need to take into account.
“If we get rid of the income tax, we might find ourselves during recessionary times having to cut the budget even more,” Powell explained. “So there are risks here.”
